03 May “Why Most brokerage houses are bullish on IDFC First Bank ?”
“IDFC First Bank shares hit 52-week high – Here is why?”
IDFC First Bank, one of India’s leading private sector banks, has seen a significant surge in its share price following the announcement of strong Q4 results on Saturday.
The bank’s shares touched a 52-week high in early morning deals on Tuesday and opened at a higher price point.
The share price surged to an intraday high of ₹65.25 apiece on the National Stock Exchange (NSE), logging an impressive 6% rise within just a few minutes of the stock market’s opening bell.
This bullish response from investors indicates a strong positive sentiment toward the bank’s performance and growth prospects.
Key Highlights of IDFC First Bank Q4 Results
-Net profit for the quarter increased to Rs 803 crore, up 134% YoY- Highest ever profit.
-The growth in net profit was driven by strong growth in core operating income.
-Net Interest Income (NII) for the quarter grew 35% YoY from Rs 2,669 crore in Q4-FY22 to Rs 3,597 crore in Q4-FY23.
-The bank’s asset quality also improved on a YoY basis.
IDFC Bank is a private sector bank in India, which was founded in 2015.
IDFC First Bank is a banking services company that was formed through the merger of erstwhile IDFC Bank and erstwhile Capital First on December 18, 2018.
IDFC Limited, a premier infrastructure financing domestic financial institution since 1997, had demerged IDFC Bank and transferred its loan assets and borrowings to IDFC Bank at inception.
Erstwhile Capital First was a successful consumer and MSME financing entity since 2012 with a strong track record of growth, profits, and asset quality.
After the merger, the bank was renamed IDFC First Bank.
The loan assets and borrowings of IDFC Limited were transferred to IDFC Bank at inception.
Scaling up of Business Operations:
The bank scaled up its
•Digital Cash Management solutions
-RTGS & NEFT payments through CMS
solutions up by 30% YoY (vol.)
Growth of 139% over the last year and
by 18% over the last quarter
-96% Of the overall transactions are digital
-AUM of Wealth Management Business has grown 48% YoY to reach Rs. 9,268 crore as on March 31, 2023.
-Largest Issuer bank
-IDFC FIRST Bank issuance business crossed 12 Million FASTAGS.
• Toll-acquiring business
-Largest Acquirer Bank with 500+ Toll Plazas and parking merchants.
It has also introduced new variants of current accounts.
Branch network expansion:
• The Bank has been expanding its branch network in recent years, with a focus on tier-II and tier-III cities.
• As of March 2022, the Bank had a network of 809 branches and 919 ATMs across 16 states and 4 union territories in India.
The company is transforming from a corporate-focused low NIM bank to a retail-focused high NIM bank.
Diversification of liabilities:
-76% of customer deposits are Retail
• The Bank has transformed the liability profile in 4 years from wholesale to retail
• The Retail wholesale Deposits mix has changed from 27: 73 in Dec-18 to 76: 24 in Mar-23.
• Strong growth in retail deposits has significantly reduced the dependency of the Bank on wholesale deposits.
• Certificate of Deposits (short-term money) has come down from Rs. 28,754 crores as of March 31, 2019, to Rs. 7,826 crores as of March 31, 2023, while the total customer deposit base grew from Rs. 40,504 crores to Rs. 1,36,812 crore in this period.
Retail and commercial loans were 35% of total funded assets in Dec ‘18. At present, they stand at 76% of the total funded assets.
The bank guides to bring infrastructure loans down to nil by FY24/25.
The retail loan book of the bank is well diversified across different business verticals and at present constitutes 63% of total funded assets.
Diversification of assets:
Increased focus on retail and MSME lending
• Retail loans and MSME loans now constitute around 85% of the Bank’s loan book, up from around 50% in 2018.
• The Bank has reduced its exposure to large corporate loans, which now constitute only around 7% of its loan book.
• Within retail lending, the Bank has a well-diversified portfolio across various segments such as home loans, auto loans, personal loans, and credit cards.
The Bank lending book is highly diversified
Steady growth in profitability:
• The Bank has reported a steady improvement in profitability over the past few years.
• Net Interest Margin (NIM) has improved from 2.08% in March 2019 to 6.05% in March 2023.
• Return on Assets (ROA) has improved from -2.68% in March 2019 to 1.13% in March 2023.
• Return on Equity (ROE) has improved from -23.11% in March 2019 to 10.95% in March 2023.
Due to these asset and liability side changes, Net Interest Margins have improved from ~3% in FY19 to ~6% in FY22. Management is guiding for NIMs to improve to 5-5.5% by FY24/25.
Important Ratios :
a) Capital Adequacy Ratio – 16.82%
b) Net Interest Margin – s 6.05%
c) Gross NPA – 1.65%
d) Net NPA – 0.55%
e)CASA Ratio – 49.8% -stable from last 3 years
• Total Customer Deposits (Retail Deposits + Wholesale Deposits) have grown strongly by 4 Year CAGR (Mar-19 to Mar-23) of 36%.
• Without the Rs. 2,131 crore current account mobilized in March 2023 from a Government Banking client as mentioned earlier, the total customer deposits would be Rs. 134,681 crore, a growth of 44% on a YoY basis.
• The Bank’s capital adequacy ratio (CAR) stood at 16.06% as of March 2023, which is comfortably above the regulatory requirement of 11.5%.
• The Bank has raised capital through various means, including QIP, rights issue, and preferential allotment, to support its growth plans.
Asset quality improvement:
• The Bank has made significant progress in improving its asset quality in recent years.
-Growing demand for retail banking products in India, especially in the areas of personal loans, credit cards, and digital banking services.
-IDFC First Bank has a strong presence in the MSME (Micro, Small and Medium Enterprises) segment, which is a key growth area for the Indian economy.
-The bank has been scaling up its digital banking solutions, which could help it attract a younger, tech-savvy customer base.
-The government’s push towards infrastructure development in India could create opportunities for IDFC First Bank to finance such projects.
-Intense competition in the Indian banking sector, particularly from established players such as HDFC Bank, ICICI Bank, and State Bank of India.
-The aftermath of COVID-19 pandemic could adversely impact the bank’s asset quality, particularly in the retail and MSME segments.
-Regulatory changes or economic policies could impact the bank’s operations and profitability.
-Any adverse impact on the Indian economy or financial markets could impact the bank’s business operations and financial performance.
Overall, the transformation from a corporate-focused bank to a retail-focused bank, increasing core deposits, reducing infrastructure loans, and improving asset quality has helped IDFC First Bank improve its profitability and net interest margins.
While IDFC First Bank has undergone significant transformation over the past few years, it still faces stiff competition in the crowded Indian banking sector. The bank’s ability to successfully execute its retail-focused strategy, manage asset quality, and leverage digital banking opportunities will be key factors in determining its long-term success.
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